Tuesday, 8 September 2015

First posting from the Barclays Back-to-school Conference: Danone and Philip Morris Intl

Well it is the day after Labor Day which - for stock market watchers - can only mean one thing: time for the conference circuit to begin.  As seems almost traditional here on Financial Orbit one conference of particular interest is the Barclays Global Staples ('Back-to-school') one which is held this year from Tuesday 8 September to Thursday 10 September.

A couple of companies I noted talking today were my old favourites Danone and Philip Morris International.  Actually I say old...but basically they are two consumer names that currently excite me.

First Danone.  The last time I wrote about the stock back in April (link here) I noted that 'It has been a good friend for me but time to take some profits on Danone'.  As you can see by the share price chart...that was a solid call:

The share though has fallen back by a bit too much now however and now merits accumulating at least given (as I note in the above link the company has a range of great products, strong pricing power and solid growth / corporate improvement opportunities).  The company's presentation (link here) inevitably highlighted their US growth opportunities - and as a company with generally stronger market positions in Europe and Asia this is actually quite important. 

Three charts particularly struck me.  Unsurprisingly the first was a general profile one. As noted by the doubling of US sales, Danone has become much more successful in the US over the last few years and has clear plans to improve the profile/distribution of their water and medical nutrition business (although not the baby nutrition one where brand power is so strong incumbent brands are well embedded - just as Danone is across Europe and Asia): 

The critical division appears to be dairy or - in the case of Danone - yogurts which they wonderfully call 'a still promising category' despite giving it the title of 'the food trend of the decade' on the same slide:

You cannot fault their growth of share in the space over recent years.  

Putting it all together...there was nothing in the Danone presentation that should stop you getting exciting about prospects at this new improved share price level.  A buy for me here.

As for Philip Morris International I have been a bull for a while, last writing about them 'smoking' in corporate performance terms here.  However to be fair since that point the shares have been wonderfully sideways (albeit whilst pleasantly yielding c. 5%):

I was pleased to hear that the company is continuing to see good market share gain led - of course - by the Marlboro brand: 

But possibly the most interesting observations from the presentation were around 'IQOS' their 'reduced risk product' which I previously talked about here

Back at the above link I dubbed the area a potential growth space but, of course, it is defensive growth reflecting the challenges especially in the developed world for tobacco consumption (although check out where management hope potentially it could go).  What was particularly interesting about the presentation was the small but growing bridgehead amongst current classic cigarette users the company was finding in their trial Japanese and Italian markets: 

Of course this is still a very small part of the business.  'On track to deliver free cash flow broadly in line with last year, despite the significant currency headwinds' still works for me.  Philip Morris International shares should be c. US$90 each in my view. In the meantime I will continue to pick up the near 5% yield and wait...

1 comment:

  1. Are you paying more than $5 / pack of cigs? I'm buying high quality cigarettes over at Duty Free Depot and I save over 50%.